Upgrade to OUTPERFORM with higher target price (TP) of RM5.00 from RM4.60
- GITP progressing well. The new Awana SkyWay is fully operational since two weeks ago. With 4,500 parking bays at the Awana SkyWay Car Park, visitors could now cut short travelling time up to the peak. The Sky Avenue’s F&B and retail outlets are also opened for public but the premium outlets are only available by 1Q17. Similarly, new gaming areas will only be operational by 1Q17. Meanwhile, Phase 1 of 20th Century Fox World theme park is scheduled to open in 4Q17. Given the successful opening of the new cable car service, F&B and retail outlets, we believe visitor arrivals will pick up in 4Q16. Coupled with the weakening of the ringgit, locals should be less inclined to make overseas travels during the festive season while it may also attract Singaporean tourists to visit Genting Highlands. Of the RM8.1bn project cost for GITP Phase 1, GENM has spent only RM3.7bn thus far. Capex for 2017 is expected to rise and we understand that the group has locked in its USD cost at rates lower than the prevailing levels.
- UK benefitting from new marketing strategy. After adopting a new marketing strategy which allows premium masses to visit its four VIP clubs, its UK casino business has turned around since 4Q15. This was supported by higher bad debt recovery and improvement in win rate (although volume is lower, premium mass generally gives higher win rate). Meanwhile, losses at Birmingham have narrowed and operations are expected to stabilize in 2H17.
- Upgrade to Outperform. We are revising up our FY17-18F earnings forecasts by 12-13% after factoring in higher visitor arrivals at Genting Highlands on the back of a progressive completion of the GITP project. As such, our SOTP-based TP is raised from RM4.60 to RM5.00. Key risk - GENM has invested USD250m of promissory notes issued by the Mashpee Wampanoag Tribal Gaming Authority for the initial development phase of an integrated resort in Massachusetts. We understand there is now an on-going dispute between the tribe and local government. If the issue is not resolved and the project fails to take off, we see the risk of GENM making provisions for this investment in the future.